Getting to "yes" in a world of "no"…

At last, some (rather scraggy, but what can you do?) meat on the bare bones of David Cameron’s recent Go-Digital-East-London-ra-ra-ra speech arrives, in the form of a Blueprint for Technology PDF just posted on the BIS website. Of course, once you strip out the platitudinosity and the stating-the-bleedin’-obviosity (for want of a better word), all that remains of direct interest to startup finance is a few sentences on page 10:-

To encourage a more enabling environment for Business Angel investing,…

[i.e. “why aren’t business angels investing? They’ve got EIS protection, what more do the buggers need to get their cheque books out?”]

…the Government will review the impact of the regulatory framework on intermediaries within this market.

[i.e. “might government have encouraged (and then FSA regulated) angel networks in a way that is somehow self-defeating? Ummm… probably. Please excuse us while we think this whole mess through a bit.”]

The Government will also encourage its SME finance delivery body, Capital for Enterprise Limited, to work with Business Angel groups to set up a Business Angel Co-Investment Fund through a bid to the Regional Growth Fund.

[i.e. we proposes that the existing SME-facing government body Capital for Enterprise Ltd (which underwrites the allegedly-‘successful’ EFG scheme) should work in partnership with an as-yet-unspecified set of UK Business Angel groups to put in a bid to the newly-£1.4bn Regional Growth Fund, with the idea of setting up an angel power-up fund (hooray!). Just so you know, Round 1 of the Regional Growth Fund closes on 21st January 2011, so that is presumably the first staging post on their forward-looking roadmap for this idea.]

If successful, this will boost Angel investment in start-ups, particularly in areas that have depended heavily on the public sector for jobs.

Before you get too excited, the RGF was set up with a specific , European-sounding regenerative remit: to “help those areas and communities that are currently dependent on the public sector make the transition to sustainable private sector-led growth and prosperity.” And as far as bidders for its rounds go, “while all areas of England are eligible to bid for the RGF some parts of the country, particularly where there is currently high employment, low-levels of deprivation and a vibrant private sector, may struggle to demonstrate how they meet the second objective of the fund.

So, it is pretty clear that any angel power-up fund set up hand-in-hand with the RGF would surely necessarily be aimed primarily at economic regeneration of deprived areas that have lost their public industry base.

Now, I’ve met a lot of UK angels over the last year (but frankly, you’d have to have been pitching a money tree forestry scheme to get angel funding in the first half of 2010), and I have to say that, well, they don’t tend to live anywhere near deprived areas. Hence I’m quite sure that none of this would apply in any useful way to David Cameron’s proposed Silicon Blind Alley (from EC1 to the Olympic Village).

On the one hand, I applaud the government’s desire to raise the level of social inclusion so that other parts of the country get access to finance. But the stultifyingly simple reason that so many companies get started in London is that it costs a sizeable amount of time and personal wealth to develop an ambitious business to the point it can sensibly look for finance – and London just happens to be home to the highest concentration of people able to personally invest that kind of time and money. Wishing that this were not so is just so much political cant – it simply is.

The problem that UK plc is facing right now is not that the rest of the UK is underperforming, but that startups in its primary economic powerhouse – London – are not able to gain access to finance by any sensible means. The case of London-based video ad startup Brainient is a good example: as I understand it, they put together their most recent funding round from a mixture of US angels and a single UK fund.

I’d say that if there was ever a time in the overall economic cycle not to engage in positive discrimination against London startups, now is it. Yet this is what government policy amounts to, it would seem. In fact, I would say that if the government wants to kick-start a new economic cycle, it should do the diametric opposite and insist that the whole proposed £200m stays inside the M25. Be bold, think IP, think scalable, go big, go London, I say.  And, then, only once you’ve demonstrated you can usefully seed the most fertile soil and bring forth valuable fruit, should you even consider using startups as a way of playing regeneration catch-up with the rest of the country.

My guess is that the whole RDF thing is no more than a receptacle for European-backed deprived-area regeneration money that was already in existence, and this week’s announcement is all about the government hoping it can steer some of its RDF fund pot towards SMEs and thus be seen to be putting money towards startups. But frankly, I don’t for a minute believe all this will actually work in practice: what insane level of co-funding would be enough to bribe Home Counties angels to invest in job-heavy startups in deprived areas, when what they want to invest in is low burn-rate startups with offshore development that are based within 50 miles of their homes? I’ve heard it said (rather bitterly, but probably with a grain of truth) that as far as startup businesses go, there is only one Angel of the North and he doesn’t seem to have very deep pockets.

Sorry, but a square is a square, a circle is a circle, and you don’t have to be a maths professor to tell the two apart. If London is the UK’s powerhouse, find a way to help its startups make things happen, or watch helplessly as entrepreneurs jump ship to sunnier (typically Californian) climes.


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